Regional Gas Distributors: Looking Forward to Investment Demand
As investors take a keener interest in the assets of gas distribution companies, we launched coverage of 11 gas distributors and updated recommendations on four companies presented in our previous desk note “Regional Gas Distribution Entities: Links in a Big Chain” dated March 16, 2007. Among major growth drivers for market caps of gas distribution concerns we would like to highlight the following:
Expected growth in gas transportation tariffs. Last month the Federal Tariff Service approved an official report on future trends in domestic gas prices, according to which gas prices will leap from the current $40 to $100 per 1,000 cu m by 2011. In view of the latest trends in the structure of gas transportation tariffication system when transportation tariffs on average are adjusted by changes in domestic gas prices, we forecast gas distribution companies to enjoy stable topline growth.
Investors’ growing interest and high liquidity. Since the release of our first research note on gas distribution companies investor interest in gas distribution concerns has grown dramatically. The companies, which we recommended, exhibited strong growth rates, boosting their market caps by an average 30%. We think that higher liquidity is the most important growth driver for the investment appeal of gas distribution concerns and we project their stock valuations to advance further moving forward.
Expansion of non-competitive business. An important trend in a company’s operating activities is stable growth in the proportion of revenues derived from gas transportation. Taking into account stably high growth in gas transportation tariffs we are largely upbeat about companies becoming more specialized and maintain that this trend could produce a positive impact on a gas distributor’s future cash flows.
| Company | Ticker | MCap, $ mln | Current price, $ | Target price, $ | Upside/downside potential |
| Komigaz |
kgaz |
10 |
30.50 |
65.74 |
115.5% |
| Kostromaoblgaz |
koog |
13 |
235.50 |
455.53 |
93.4% |
| Tveroblgaz |
tveo |
35 |
194.50 |
349.67 |
79.8% |
| Volgogradoblgaz |
vggg |
10 |
302.50 |
542.25 |
79.3% |
| Voronezhoblgaz |
vogz |
44 |
1.99 |
3.49 |
75.5% |
| Nizhegorodoblgaz |
nnog |
81 |
2.92 |
4.94 |
69.0% |
| Orenburgoblgaz |
orog |
53 |
687.50 |
1,099.97 |
60.0% |
| Tambovoblgaz |
togz |
18 |
20.38 |
29.69 |
45.7% |
| Bryanskoblgaz |
brog |
40 |
365.00 |
513.06 |
40.6% |
| Saratovoblgaz |
srog |
21 |
5.65 |
6.80 |
20.4% |
| Rostovoblgaz |
rtbg |
67 |
492.50 |
583.90 |
18.6% |
| Rostovoblgaz, prefs |
rtbgp |
67 |
367.50 |
422.76 |
14.9% |
| Vladimiroblgaz |
vlog |
28 |
625.00 |
715.49 |
14.5% |
| Smolenskoblgaz |
smog |
21 |
52.50 |
46.38 |
-11.7% |
| Kurskgaz |
krgz |
23 |
255.00 |
212.53 |
-16.7% |
On the whole, we are optimistic about prospects of the gas transportation industry and believe that most regional gas distribution businesses are considerably undervalued by the market. In our opinion, if conditions in the sector remain favorable gas distribution stocks are capable of unlocking considerable value as early as this year.
Clients of Finam Investment Company may receive full versions of analytical research reports translated into English by sending requests to the International Trading Department.
Vladimir Sergievskiy
* Short overviews of equity research reports and sector reports are posted on the website http://www.finamrus.com with a 1-day delay after their full versions are emailed to the company’s clients. To get overviews on the day of their release, please contact your manager at Finam to sign up for full versions of research reports.
Sector:
Other,
Gas Distribution
Companies:
Bryanskoblgaz,
Orenburgoblgaz,
Saratovoblgaz,
Tveroblgaz
All Research Notes >>
0.168
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